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On Episode 51 of the Your Financial Pharmacist Podcast, YFP Team Member Tim Baker, CFP talks the 8 things to do or avoid to evade financial purgatory after graduating from pharmacy school.

Episode Transcript

Tim Baker: What’s up, everybody? Welcome to Episode 051 of the Your Financial Pharmacist podcast. Tim Baker here, flying solo, I think for the first time. I guess when you hit Episode 050, I guess we’ve made, so we’ve only sent one Tim to the mic. But all kidding aside, I am happy to be here to host today, and I really want to speak to the recent graduates out there because of I think how important this particular time is in life and in your financial life and in general. So it got me thinking, Tim Ulbrich and I were out at the University of Southern California, speaking to the, basically the entire rising P1s and P3s and the recent graduating class who was hard at work studying for their boards and took some time to listen to Tim Ulbrich and I speak about personal finance. And I’ve got to give USC a shoutout, a well deserved shoutout, to Dr. Park, Carolina and Rocio, I think it was, our stay there and our interaction — Tim Ulbrich and I were excited to come speak, and I think we left even more fired up after our engagement with the students. Super impressive group across the board, and it really got me thinking, especially after talking to the recent graduating class about how important this time is for them. And it really sets the pace. And you know, my work with pharmacists across the country, oftentimes I speak with pharmacists who are five, six, seven years out or more, and they feel like they have nothing to show for it. And I mean, think about even Tim Ulbrich and Tim Church, kind of both admit to, you know, what happened to them after graduation. They were basically kind of sputtering a bit and not really sure how to approach the loans and, you know, not much in the way of making a dent in the debt, maybe a little saved. And I think what often happens is that the pharmacy salary or the promise of that six-figure salary lures you into thinking that everything will be OK because really, you know, as a student, you’re not really making anything. And the promise of making $120,000 soon, you know, once you pass your boards that is, it’ll figure itself out. And that tends not to be the case in a lot of ways. So hopefully, you know, if you are a recent grad, if you’re transitioning to a six-figure income or maybe to a residency program, or if you are a new practitioner and you feel like you’ve been sputtering and this really hits a chord that it’ll prompt you to change course and to right the ship in a sense and get your financial plan in order and really get that moving.

So one of the things that, you know, we discuss often is that, you know, pharmacists on average will make $9 million over the course of your career. $6 million will actually flow through your bank account. So think about that. That’s a lot of money, and I often say to pharmacists, ‘So what are we going to do about it?’ You know, and obviously if you’re transitioning to a residency program, and that might be a little bit of a delayed bird, and that’s OK. And you’re not going to have as much flexibility here as maybe a counterpart that is going, that is foregoing the residency. But I think it’s still important to kind of be mindful of the income that’s going to be coming in.

So back in Episode 035, I had Dr. Sarah Fallaw, who owns Data Points. And basically, that’s a tool that I use that manages a client’s behavior. And it’s based on the research that her father did, Dr. Thomas Stanley, who wrote “The Millionaire Next Door,” and essentially what he studied was that there are really six major factors of the millionaire next door is the people that have achieved a net worth of $1 million or more. You know, there are behavioral factors that come into play that really play a part into achieving that type of wealth. In the episode, we talk about those factors — basically, frugality, confidence, responsibility, focus, planning and monitoring and social indifferent. And these are all factors that play a part and that can be measured versus your peer group. A lot of what I do, you know, is not necessarily — or the value that I provide clients is not really in the order of, ‘Hey, Tim, where should I invest this money? What mutual fund or ETF should I pick? Or what insurance policy should I have?’ And those things are important, but they’re very technical. I think the overarching part of this whole financial planning piece is the behavior, is how we behave. So the message to a recent graduate is be on your best behavior. School is out, you are fixing to make a sizeable income, and not to go nuts. And I use nuts facetiously, but you know, the tendency as humans is that if there is an abundant resource, we’ll spend it. And that could be true as that paycheck flows through your account, you feel that, man, I have a lot of money, what can I buy? What can I purchase? And in the age of social media where everyone’s getting a new car and a big house and taking these trips — and those things are important, and those things, some of those things are important. Those things should be baked into your financial plan. You know, the social indifference part of it is that you’re not going to get caught up in the FOMO or the YOLO of things. And to be honest, I would say that you should, you just graduated, you should treat yourself. You should be able to splurge some and celebrate those wins. But do it in a way that is purposeful, that is maybe not long lasting. So don’t go out and buy, you know, a $50,000 car that you might not be able to afford because that one’s tough to get out from under, and now you’re stuck with that car payment. But I think the behavior is such a big part of this.

So aside from being on your best behavior, think about your goals. And it sounds trivial, and it sounds really not that important, but when I interviewed Tim Ulbrich and Jessica Ulbrich back in Episode 032 and 033 where we talked about find your why, these are often questions that we don’t ask ourselves or we don’t talk about with our spouse or our partner. And we should. And sometimes it’s just life gets busy, and we really don’t take the time to say, where am I going? Why did I go to school and get this degree? And why am I taking this job to earn this money? Like what’s the point? And I often say to clients, you know, because the way that I work with clients and the way that I price my services is based on the client’s income and net worth. And you know, because I think that is the best way to measure basically financial health and progress. And I think it has the least amount of conflicts of interest with regard to giving sound advice. But it’s flawed in a sense that if we work together for 30 years, and I help that client their nest egg number of $5 million or $6 million or whatever the heck it is and they can comfortably retire, but they’re miserable because they haven’t done things that they wanted to do throughout life like hike Machu Picchu or do that European trip or maybe have a family or buy this house or whatever it is, what’s the point? You know, what’s the point of that? And I think it’s a constant exercise in taking care of the present self and looking to the horizon and making sure that we’re taking care of the 30-year or 40-year-older self as well. And I often think that like if you don’t feel that push and pull, you’re probably not doing it right. And I think that’s the same with budgeting, the evil b-word. If you’re not feeling kind of the push and pull — and I think if you’re doing effective budgeting, you’re creating a sense of scarcity because you’re doing the things, you know, the proverbial things like paying yourself first, which is easier in theory, harder in practice.

So in terms of your goal, we subscribe to the what, when and why method. So that basically means that we have statements that basically look like this: “I will x by y so that z.” So what, when and why. So an example of that would be “I will save $5,000 by December 31, 2018 so I can protect my financial plan from an emergency.” That’s a pretty good one. And that actually might not be a bad one — obviously, this is not advice — but that might not be a bad one to look at. But I think another part of this — and we talk about this often is like, you know, think about your goals. But how do you feel about them? Like when you think about — obviously, the elephant in the room is student debt. And you might have heard us talk about student debt once or twice on this podcast. How do you feel about the debt? How do you feel about being able to retire at age 50 or 60? Or how do you feel about the prospect of hustling over the next few years to get through the debt? Or the prospect of investing and watching your, basically your nest egg grow? I think often that we try to — and I say we, maybe it’s my profession or whatever — but we try to out-math you and say, well, time value money and blah blah blah. And that stuff is important, but like if I have clients that are like, I can’t sleep or I’m anxious because these student loans are just gnawing at me, well, let’s do something about it. Let’s be proactive. And you know, the math might say one thing. But that doesn’t mean that that has to be our path. So really think about how you feel and you know, challenge yourself. What are 3-5 financial goals you can write down today and realistically achieve in the next five years? And what I often do with clients, and I think we did on the episodes with the Ulbrichs was transport yourself to that time in the future. So if you’re 26, and you’re thinking five years, uh, I don’t know. I don’t know what I would do in five years, think about it as if you’re 31. And then look back as a 31-year-old and think about that half a decade that just went by, and ask yourself, what does success look like? And I think if you can kind of start with the end in mind and look back, it makes it a little easier to do. I think.

So think about your goals. And really, the next step — and man, I’m going to say it. I’m going to beat the horse dead once again. But it’s the budget. It’s all about that budget. And you know, I think for people that have big, hairy, audacious goals or that — and one of them might be to get through the student debt as fast as possible. One might be to basically be in a position where they can retire comfortably early. It really could be anything. But really take the time — and you know, if you are a pharmacist that recently graduated, hopefully — you know, when we were talking to USC, a lot of their students, they were about ready to go to their residency, and obviously they knew what they were going to make or they had jobs from whether it was community pharmacy lined up, and they had offer letters. So you more or less get a sense of what you are potentially taking home every month. So determine that take-home pay. You know, do some calculations of what will come out because of taxes and different, you know, whether it’s health insurance or all that type of stuff. And then really next is determine what your essential expenses are. So in my world, we call these nondiscretionary monthly expenses. So these are things that are going to come out regardless of if you have a job or not. So things like your student debt payment. That could be argued because if you do have financial hardship, a lot of times, both with your federal loans and even if you were to do a private refi, a lot of those situations, you can get some reprieve. But I probably would calculate it as such. The essential expenses are going to be things like your mortgage or your rent, groceries, utilities, cell phone bill. We can’t live without our cell phone, right? So take a tabulation or make a list of all those expenses and add them up. And then really the next thing is to take and determine your discretionary expenses, so that could be entertainment like Netflix, Hulu, going to the movies, things that if it were to hit the fan, you probably could cut. And then from there, you can essentially determine what is left over, which is your disposable income. And by the way, part of what the essential expense probably should be is savings. So savings is actually categorized as an expense because you are foregoing immediate consumption. So what I often do with clients, and I do it with their client portal, we’ll do a retroactive budget. It’s one of the first meetings we go through. If we determine that, hey, we have $10,000 flowing through our account, and we can see it because of all the transactions and then we can see all the stuff that’s basically flowing out of their account, the exercise is basically to show if we have $10,000 flowing into our account, we essentially should have $10,000 flowing out. And that’s what’s called a 0-based budget. So every dollar has a job. And part of that $10,000 flowing out is hopefully savings. So if we determine after we go line-by-line through every part of their budget that, hey, the expenses actually add up to $9,000, then that tells me that we have $1,000 either to maybe put towards their loans, maybe if they have credit card debt, that would probably be the first thing we do. Maybe it’s to plus up their emergency fund or just savings in general. So we talk about sinking funds, and that’s kind of for those non-monthly expenses that pop up like home maintenance or car maintenance or things like that that aren’t necessarily an emergency, but they happen. So that’s essentially what that looks like. And I think, you know, and we talk about this in our student loan course. In module 1, Tim Ulbrich goes through this. I think having that disposable income number, knowing your number is so powerful because it really can dictate, you know, exactly where to go and how to fund your financial plan. I really encourage to do this, and you can use a napkin, you can use Excel, you can use something like Mint or YNAB or envelopes, that’s what Tim Ulbrich used when he paid off his debt. So I think if you have that number, you can very purposely apply what that disposable income is towards your goals.

And secondarily, you know, in talking, you might be a resident out there, and believe me, in the student loan course, we ran what a typical resident makes, and honestly, there’s not much left over. So I think when we looked at that — now, you’ll get a reprieve if you do look at an income-driven plan, obviously. And that’s one of the things to be aware of too. So if you’re a resident, there’s not a whole lot to work with, so I think the name of the game in that is really to kind of hold on and not incur additional credit card debt and really come out when you transition to that six-figure income ready to go. But the next part — and I’ll speak to residents on this part too — is really have a plan for your debt.

So the first one I would definitely look at is the credit card debt. And I’m finding more and more new practitioners, when I speak to them, have said that they’re leaving school or they’re taking on credit card debt during school. And that’s one thing that even before we get serious with the student loans, the credit card debt gots to go. Secondarily, having a plan for your student debt, obviously is super important. Properly inventorying your loans, whether your federal loans or private loans, and then really selecting the appropriate strategy and repayment plan. So the two broad strokes in terms of strategy are the forgiveness option and the non-forgiveness option. And you know, basically the forgiveness option can be broken down by the Public Service Loan Forgiveness program, which obviously can be very controversial. But you can also be forgiven — a lot of people don’t know this — outside of that program. And they’re a little bit different of programs, but if you are a resident and you think that you’re working for the nonprofit or a government entity, starting the clock on that PSLF, that 10-year program, should happen for jump street, should happen immediately. And that’s one of the things that we discuss in the student loan course is how to really optimize that if you are in that situation. We have a lesson just for that. But if you’re in a non-forgiveness strategy, so you look at the forgiveness strategy and you say, thanks government, thanks, but no thanks, I think I’m going to do it on my own. And really this is probably more of a proactive. The problem with the forgiveness programs is they are more of a reactive. You’re kind of hoping and crossing your fingers that the programs will be around. And I think that they will be around in terms of at least being grandfathered in, that’s Tim Baker’s opinion based on some of the things that I’ve seen come out recently. And we probably can do a whole different episode on that. So if you listen to the podcast, and you’re part of our Facebook group, if that’s something that you want us to talk about, the PSLF program, the state of that, I can kind of give some thoughts and we can probably do an episode just around that. But if you’re in a forgiveness strategy, it’s more reactive, and you’re hoping, OK, government. Please follow through on the things that you said that you do. And if you’re in the non-forgiveness strategy, it’s more, OK, taking the bull by the horns, being more proactive and not necessarily be where you’re paying off $8,000-10,000 per month like we’ve seen some of our debt-free pharmacists do, but there’s a spectrum that you can fit in depending on what your disposable income number is and whether that is staying in the standard repayment plan or looking at one of our partners that does the private refinancing. There’s a lot of different ways to kind of, to look at it, and you know, you just want to make sure that you have a purpose. So I often see a lot of pharmacists, they say, ‘You know, when I got through pharmacy school, you know, I knew I couldn’t make the standard repayment plan, so I decided to go into IBR or ICR,’ and that’s one of the income-driven plans that’s out there and maybe not necessarily one of the best ones. But there’s really no intent behind it. And you know, I think oftentimes, what I see is people that are, borrowers that are kind of in between. And I think what we espouse in our course is that you need to really be either pursuing a forgiveness option or pursuing a non-forgiveness option and really fly one of those two flags. If you’re kind of in the middle, you’re in no mans land or no persons land, to be politically correct. So if you are a new graduate, and you’re hearing me talk about loans, and you’re looking for some clarity, like I mentioned, the student loan course for pharmacists is out, and it’s ready for you to sign up, so visit courses.yourfinancialpharmacist.com to enroll. And really, it’s a three-module course, each module taught by a different Tim. So Module 1, we start you off with getting organized, so doing a proper inventory of your loans, walking you through loan basics, the total cost of loans, budgeting. I teach Module 2, which is determine your payoff strategies. I walk you through exactly the two main strategies and where you potentially fit. I throw in some case studies, and also, there’s one lesson that is targeted just for residents. And then finally, Tim Church wraps it up with Module 3, which is optimizing your payoff strategy. So the course is chocked full of goodies and resources and really, when you are done taking the course, you should walk away with clarity and confidence about how to tackle your loans. So again, go to courses.yourfinancialpharmacist.com to enroll.

The next thing to really discuss is having an emergency fund. So the textbooks say — the emergency fund is basically liquid assets, we’re talking cash money, that is set aside for those unexpected, I can’t believe that actually happened and I need to spend money, events. And what the textbook says is that you need to have 3-6 months of those nondiscretionary or essential expenses. So if you’ve done your budget, thank you very much for doing your budget, but you should know that number. So as an example, if your loan payment is $1,500, and your rent is $1,000, and you are single, what that means is that you should have six months, — because if you’re single, you should have six months. If you are a dual income household, you should have three months, and there’s shades of gray in between. But if you were single and your rent and your loan payment combined are $2,500, multiple that by 6. Congrats, you need $15,000 to cover that. And that’s not even — that’s just covering that — that’s not even the groceries, the utilities, all those things. But you can see how much potentially you need for an emergency fund. So I guess what I want to say here and what I often say to clients is this is what the textbook says. But if you are looking at aggressively paying off loans or depending on where you’re at on the spectrum, you don’t have to basically build Rome in a day. Work towards $5,000. $5,000 will probably cover 75% of emergencies out there, maybe. Work towards $10,000. $10,000 will probably cover 90% of emergencies, maybe. So I think — so this is kind of what I have when I build plans out is have conversations, ask good questions of the clients, of my clients. And then basically say, OK, let’s phase this in. So Phase 1, by the time we get to this level of emergency fund, then we’ll work more aggressively toward this other goal and the next level. So don’t get discouraged, but having a properly funded emergency fund is super important to this whole thing, this whole financial picture.

The next thing that I want to mention that is attributed to a lot of the lifestyle creep that I see, not just with young pharmacists but also young professionals in general — so really what I’m talking about here are car purchases and home purchases. Now, Tim Ulbrich did an excellent job going through car buying in Episode 047, so if you haven’t listened to that, take a listen. So I won’t spend too much time on car buying. But you know, I would just say, and what I say often to young professionals and sometimes have to say this to myself is, you know, once you go in high-end Beamer, Lexus, Audi, it’s really hard to go back. So I’m not trying to dampen the spirit here, but you don’t have to have your dream car — and frankly, you don’t have to have your dream home — right off the bat, especially if you’re staring at $160,000, $250,000, whatever that is, that student debt picture. So because — and I know from experience working with some clients, they go out and they make that purchase, and those cars, they just depreciate so fast. So even if they want to get out of it, you know, they’re underwater, and now they’re stuck with an $800 car payment, and that’s no bueno. So really think long and hard before that happens. What “The Millionaire Next Door” says is that most people that achieve that $1 million net worth, they’re thinking that some other sucker, maybe — can we say sucker? — some other sucker is going to buy a car new, take that depreciation, and then the millionaire is going to come in three, four, five years later and buy that car when most of the depreciation has come off. So just a think to kind of marinate on.

You know, the other thing in terms of major purchases is the house purchase, the home purchase. And same thing with the car, you don’t have to buy your dream home right away. If you are faced with a massive amount of student debt, essentially, you’re broke. So to add another $300,000, $400,000, $500,000, that’s a lot of debt. So we’re a big believer in having as much money that you can bring to the table with regard to a home purchase. PMI, Private Mortgage Insurance, it doesn’t put any equity into your house. It just basically evaporates money from your balance sheet. You know, I think obviously, a very small percentage of people can come to the table — I think it’s like 10% come to the table with that 20% down payment. I would listen back to when we had Nate Hedrick on Episode 040 and 041 where we talk about home buying, that it’s important cash is king with this, it’s important to come to the table and really think about that. And I think if you can set the target of 20%, it really will force down your purchase price. So obviously, if you are looking at a $300,000 house — and I know those students out at USC are laughing at me right now — but if you’re looking at a purchase price of $300,00, that essentially means that you need to save $60,000. So maybe that $300,000 purchase becomes a $250,000 purchase. The point is is that what often happens is when you look at the decision to buy a house, I think sometimes we as a de facto because we’re told that the American dream is to purchase a home and build equity, that it’s almost like our birthright. And it really isn’t. It really isn’t. I think it’s something that should be done responsibly. And one of the tools that we talked about in our recent talk is that, you know, a $1,500 rent payment does not equal to a $1,500 mortgage payment because you need to factor in things like taxes and fees and closing costs and all that stuff, the maintenance of the home. And the New York Times has a great calculator that we’ll link in the show notes that basically looks at all those variables and basically tells you, you know, if we look at the purchase price, the interest rate, how long you plan to stay in the house, taxes, all that stuff, that there’s a break-even point that basically, the calculator will show it makes sense to buy or it makes sense to rent. So the word of caution here is not Debby Downer, but it’s just to think of that purchase not necessarily as an investment, because it’s really not. I think a home that you live in shouldn’t really be thought of as an investment. And again, once you sign those papers and you’re on the hook for a $2,000, $2,500, $3,000 mortgage payment, you really limit yourself in terms of flexibility with other parts of your financial plan.

So another thing to keep in mind is investment. So if your employer provides a match, absolutely should be matching that and getting the full match. Oftentimes though, what happens is I see people start a new job, they are delayed because they have to be at a job for a certain amount of time, maybe it’s six or 12 months, and then all of a sudden they’re like, well, I really like this paycheck, maybe I won’t put money into my 401k. And during that time when you’re not eligible for that 401k, you have that lifestyle creep. You buy the house or the car, and it doesn’t make sense for you. You’re basically, you’re capped out, and it’s hard for you to defer money into that 401k. So that’s something to be mindful during that period before you become eligible. And I would say, bank it in a savings account just like you were deferring it into a 401k.

The other thing to be mindful of is really what’s called 401k inertia. So if you’re employer matches 3%, you know, absolutely you should try to match 3% without question. What often happens is that it anchors the person to that 3%, whereas in reality what I tell clients, it’s kind of a race to 10%. You want to be — when we do those nest egg calculations, you need to be deferring some money away, stocking some money away for that 30-year-older self. So don’t get anchored down by that 401k match, whether it’s 3%, 5%, 6%, and just be mindful of that. And a lot of 401k’s now, you can basically build in like a percent increase every year, and I would totally tell you to do that. Just schedule it, 1, 2%, start that as soon as possible.

So the last part I want to mention is insurance. So the message here is beware, but be covered. So the two that I want to really discuss here is life insurance and disability insurance. And we’ve talked about life insurance in Episode 044 and disability insurance in Episode 045, and you know, I think that these are a crucial part of the financial plan. And really, we talk a lot about accumulation and growth of your assets and of your net worth. This is really the protection of that. And I think that is equally important.

So a few points about life insurance. If you are a new graduate, and perhaps you’re single, you don’t have a family, you don’t own a house, you probably don’t need insurance or you probably don’t need that much insurance. Pharmacists are often targeted, particularly with life insurance, because of the incomes that pharmacists make. And on numerous occasions, when I work with pharmacists, sometimes I have to unwind some of the policies that are sold them. And what I mean by that is you know, at YFP, we believe that term — if you do buy insurance, term life insurance is the best way to go. It’s pure insurance, which basically means that there’s no savings or investment component. It covers you for a period of time. So it could be 20, 25 or 30 years. And if you don’t die during that time, which hopefully you don’t, basically at the end of that term, it expires. It’s essentially done its job. Whole life or what’s called permanent insurance or variable life or universal insurance, there’s different types of permanent insurance out there, essentially, it is part insurance and part savings or investment. And typically, these types of insurance policies are five, six, seven times more expensive than a term policy. And I think that they are often, you know, they’re better for the person or the salesperson that is selling it than it is for the person, the pharmacist in this case, that is buying it. Life insurance I think is crucial. And just to kind of give you a sense of what a policy costs, you know, general rule of thumb — and I think we talk about this in Episode 044 — is 10-12 times income is essentially probably what you need. Say you make $100,000, you need basically $1 million to $1.2 million. So a healthy 30-year-old, so just to kind of give you a sense, so think 30/30/30. So a healthy 30-year-old who purchases a term life insurance policy for 30 years, basically will pay between $30-35 for that policy. So you know, double that, between $60-70 will probably cover you. And the sooner that you get it, obviously, so maybe you don’t have kids, but you want coverage. The sooner you get it, every year that goes by, those premiums go up about 8-10%. So you know, obviously, life insurance is crucial.

Disability insurance probably even more so, especially for you new grads out there. As we mentioned, $9 million over the course of your career, that’s what you’re going to make. You spend lots of time, lots of blood, sweat and tears to get your PharmD, to get licensed, to get going. You’re going to want to protect that. Having a policy to cover you — and we talk about this in Episode 045, and I encourage you to listen if you haven’t listened to that — is important. And to kind of give you an idea, if you were to buy a long-term disability policy on your own to cover 60% of your income, which is kind of best practice, you’re going to spend probably about $120-150 per month to get coverage. Now, some of you are going to be covered by your employer. So we often say that you should get a supplemental insurance policy to basically cover the gap because most employers won’t cover a full 60%, so you should get a full policy that covers that gap with the ability, what’s called a rider, to buy up in case you were to go to a job that doesn’t have that full disability policy. And the same thing with life insurance. Some of you are going to have life insurance through your employer, and it might be one or two times income, and you really don’t even have to do anything to opt into that, it’s just automatic. But oftentimes, it’s going to be far below what you actually need to be fully covered. And it’s also good to have a portable life insurance policy that basically doesn’t matter where you’re working to have that coverage.

You know, we covered a lot of ground here. And you know, and again, you know, the timing here is crucial. What you’ll do here in the next one, two, three years will really set the tone for your financial life and the outlook going forward. So you know, be on your best behavior. Think about what your goals are. Have a budget in mind. Make sure you have some type of emergency fund in place. Have a plan for your debt, whether it’s the credit cards or the student loan debt. You know, be mindful of how much you’re spending on those major purchases. Cash is king. Get into the investment game, whether that’s just taking the match on your 401k to start, that’s good. And cover yourself, but beware. So you know, life insurance policies and disability policies are important.

So you know, the Tim Baker challenge, you know, what are you going to do? What is your plan? If you’ve listened to this episode, and you’ve written down 3-5 of your goals that you’re going to achieve in the next five years, tag me on our Facebook group, call me out and say, ‘Hey, Tim. This is the plan.’ And you don’t have to be a new grad or a pharmacist. I encourage you if you haven’t done this yourself, put it out there. I will respond, and we can have a conversation about that. But I’m so happy that you guys joined me this podcast. It was a blast doing it by myself and looking forward to next time.

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On Episode 48 of the Your Financial Pharmacist Podcast we spotlight Dalton Fabian, a soon to be pharmacy graduate from the Drake University College of Pharmacy & Health Sciences. We ask Dalton about his current financial situation and help him think through how he and his wife can prioritize multiple competing financial priorities when making the transition from student to new practitioner.

About Our Guest

Dalton Fabian is a soon to be 2018 graduate of Drake University College of Pharmacy & Health Sciences. In addition to obtaining a PharmD, Dalton has a minor in Data Analytics. His career interests include health data science and using technology to make patient care more efficient and effective. During his time at Drake University, Dalton was heavily involved in various leadership opportunities focused on advocating for the profession, including serving as the Chapter President for APhA-ASP and planning health fairs for the Des Moines Community.

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Mentioned on the Show

1. The Total Money Makeover by Dave Ramsey
2. The Dave Ramsey Show
3. The Pete the Planner Show
4. YFP Episode 026: Baby Stepping Your Financial Plan – The 2 Things to Focus On First
5. YFP Episode 032:Find Your Why with Tim & Jess Ulbrich – Part 1
6. YFP Episode 033: Find Your Why with Tim & Jess Ulbrich – Part 2

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to Episode 048 of the Your Financial Pharmacist podcast. Tim Ulbrich here, alongside YFP team member and owner of Script Financial, Tim Baker. We’re really excited to have on today’s show a soon-to-be, literally this week, 2018 graduate of Drake University College of Pharmacy and Health Science, Dalton Fabian. I had the pleasure of meeting Dalton at APhA annual in Nashville in March 2018, and when I heard a little bit about his financial story and his interest in personal finance, my first thought was, we have to have him come on the show because his story is going to resonate with so many new or recent graduates that are making this transition from student to new practitioner. So Tim Baker, excited to have you back on the show, I know you were in the weeds for a couple weeks on wrapping up the student loan course, right?

Tim Baker: Yeah, something like that, Tim. So good to be back and contributing to the podcast again. It’s a labor of love with the student loan course, but the course is out there. Our beta testers are hard at work, hopefully, testing everything out and making sure it does what the course says it’s supposed to do. But yeah, glad to be on the podcast and glad to talk to Dalton today.

Tim Ulbrich: So before we jump into hearing from him, I’m curious from your perspective, from the planning perspective, obviously you work with so many new graduates or recent graduates. What are the challenges that you’re seeing that they’re facing in terms of making this transition from student to new practitioner? Where are they getting stuck? And obviously, why is this transition so important?

Tim Baker: Yeah, I think this time period in the course of the career of a pharmacist new practitioner is so critical because it really sets the stages for their financial life now going forward. And it’s funny because you know, I have a lot of meetings last week and this week with clients or prospective clients similar to Dalton, and I’m hearing words like “terrified,” “unsure,” “uneasy.” And I think a lot of the backdrop is how do I handle this behemoth that is the student loans. And hopefully the course fills in some of the gaps there, but that’s one part of it. And I think that to set sound behaviors and to kind of have a plan going forward is going to be vitally important because if you just leave this thing kind of on autopilot, it can get away from you fairly quickly. And that could be in the form of just your spending going awry or just not being intentional with, you know, your student loans or whatever goals that you might have. And we’ve talked about being intentional in the past, but I think that this part of the pharmacy timeline is crucial, especially depending on what your goals are. So I’m definitely interested to hear more about Dalton and his story, and I think it’s going to resonate with a lot of our listeners out there.

Tim Ulbrich: Yeah, I think overwhelmed is the one word we hear over and over again of you know, I’ve got all these competing priorities. Where do I start? Where do I go? And when I had a chance to talk with Dalton, obviously he’s got a lot of things going on that we’re going to hear about in the show, but I also love his passion for learning about this topic, and I think that’s really going to help him set a sound plan for the future. So here’s how the format of today’s show’s going to work. Tim and I are going to interview Dalton, we’re going to ask him a series of questions that’s going to allow him to share his financial story, and in turn, we’re going to discuss various strategies about how he could think through this transition. Now, important disclaimer here is that obviously, we’re not intending to give Dalton financial advice. So we acknowledge everyone’s situation is unique. We aren’t necessarily going to gather every piece of information about Dalton and his story. So we’re going to help ask some questions, get him thinking about it. But ultimately, we recognize and acknowledge for each person listening to this show, it’s going to an individual, unique decision when it comes to your own financial plans. So without further ado, let’s jump into today’s interview with Dalton Fabian.

Tim Ulbrich: So Dalton, welcome to the Your Financial Pharmacist podcast. We’re excited to have you.

Dalton Fabian: Thanks for having me.

Tim Ulbrich: And by the way, congratulations on completing your final year of pharmacy school. And knowing this is the week leading up to graduation, thank you for taking time to come on the show, I’m sure it must be somewhat a busy week. And didn’t you just finish your rotations last week?

Dalton Fabian: Yep, so we finished them last week, have a week off, and then graduate on Saturday.

Tim Ulbrich: Awesome. So thank you for taking the time to join us in the midst of all that craziness. And as I alluded to the introduction, we’re going to pepper you with some questions to learn more about your financial situation, some of the challenges you’re facing, maybe some of the decisions that you’ve already made during this transition period from new graduate, obviously into new practitioner life. We know that, as I mentioned already, we know many of our listeners are probably in a very similar, if not somewhat the same boat that you are, either making this transition, going to be making this transition or recently making this transition. So why don’t you, to get us started here, why don’t you tell us a little bit about you, where you grew up, why you chose pharmacy as a profession, what some of the career goals and interests are that you have.

Dalton Fabian: Sure. So I’m originally from Waukesha, Wisconsin, which is a suburb of Milwaukee. I’ve been going to Drake — did undergrad and pharmacy school at Drake. Drake has a two plus four program. Immediately when I get on campus, I knew that’s where I wanted to be. The professors were friendly and all of that, so I just knew that that’s where I wanted to do my pharmacy school. I chose pharmacy — kind of first, I was interested in you know, helping people, interested in learning more about medications. But as I got through pharmacy school, I think that kind of transitioned to just seeing how progressive the profession was, and that made me motivated to go through pharmacy school with immunizations and all those different sorts of things. And then while I was in pharmacy school, I got introduced to informatics and programming. I got really interested in that, and that’s where I plan to pursue additional training.

Tim Baker: And that’s news, right? Dalton, you recently got accepted to — what is it, a Master’s program?

Dalton Fabian: Yeah, so I got accepted to a Master’s program, so it’s the Master’s of Science and analytics. Interested in kind of getting into the Health Data Science and Data Science career path. So yeah, just found out a couple weeks ago that I got accepted there at Georgia Tech.

Tim Baker: Oh, very cool. Very cool. Congrats on that. I guess the question for you, Dalton, is, you know, when you were going through pharmacy school and you know, you were looking at the loans that you were accruing, when did you start really thinking about the whole idea of personal finance? Or when did you get interested in learning more about it? Can you walk us through kind of that discovery for you?

Dalton Fabian: Yeah. I really didn’t focus too much on my student loans until I got interested in personal finance. So I’m a big runner, and got in — couple years ago, got into audiobooks and podcasts and came across “The Total Money Makeover” by Dave Ramsey. I had heard of it before, but came across it as an audiobook, listened to it. Dave Ramsey’s the one who narrates it, so it’s kind of cool to have the author and kind of a well known person narrate the book. So that kind of got me excited about just personal finance in general. And then it kind of made me realize that with being a pharmacist, having a high income and high student debt, that I would need that information in the future. So after that, got into some other personal finance podcasts to kind of get different perspectives on personal finance.

Tim Ulbrich: So for our listeners, Dalton, that are personal finance nerds out there, obviously, we hope they’re listening to the YFP podcast, but what are some of the other personal finance podcasts that you like?

Dalton Fabian: In addition to YFP, love the Dave Ramsey show, so it’s on a podcast also. And then probably one of my other favorites is Pete the Planner, really like his podcast.

Tim Ulbrich: Yeah, good stuff. OK. Cool. So Tim Baker, before we start rapid firing Dalton with some questions, where do you typically start from the planning perspective with a client like Dalton? I mean, what are some of the things that you’d want to know? And how would this typically play out, you know, when somebody signs on to work with you in terms of getting some of this information?

Tim Baker: Yeah, I think when I first meet with a prospective client, basically, the things that we’re going to talk about are like, what are the main pain points or what are things that are kind of top of mind for you? And we kind of just go down that process of discovering, say ‘OK, what are the things that are of concern?’ Whether it’s student loans, whether it’s retiring at a decent age, building a real estate empire, could be credit card debt, could be how to cash flow a certain financial goal. So to really kind of uncover those things that are providing some discomfort. And then just to see if we would be a good fit to work with each other. You know, I think that type of relationship, you’ve got to have obviously trust, but the way you communicate and the way that recommendations are shared I think are vitally important. So I think we would kind of come to that type of period where we say, ‘Hey, does it make sense to go forward based on here are the things that you’re looking at?’ And if we kind of get that, yeah, let’s do this, the client would get into that get organized phase, which we talk about in the student loan course. But this would be the get organized phase of everything, so this is where, Dalton, we would look at all the things financial for you, whether it’s you know, your checking, your credit cards, any student loans that you have, car loans, all that stuff we would basically go line-by-line and basically build out that dynamic net worth statement. And I think that, coupled with a look at a retroactive budget, just to see where cash flow is going, those are kind of the basis for the relationship that I build with clients initially.

Tim Ulbrich: So speaking of pain points then, you kind of mentioned that you start with some of the pain points, Dalton, I’m assuming just from our previous conversation, student loans is top of mind or at least close to the top. So talk us through a little bit about your student loan situation. And if I recall, both you and your wife have student loans, correct?

Dalton Fabian: Yeah. So we both do have student loans. My student loans, just alone, are a little bit over the national average for pharmacists. So I’m about at $190,000 in student loans. So that’s definitely a major financial priority.

Tim Ulbrich: What about for your wife?

Dalton Fabian: Hers are about $90,000.

Tim Ulbrich: OK. So I remember, I think when you and I talked, about $280,000 all in is what we were talking about.

Dalton Fabian: Yes.

Tim Ulbrich: Yes, OK. And remind me — I mean, one of the things I think we’re thinking of, especially as we’re in the context of the student loan course and trying to think through strategies of, is it loan forgiveness? Is it refinancing? Is it keeping them there and paying them off? Tell us a little bit about the interest rates of those loans.

Dalton Fabian: Sure. So I went through and kind of created a weighted interest rate, and so for that $190,000, it’s about 5.9% for my interest rate.

Tim Ulbrich: OK. 5.9%, and then for the $90,000, for your wife, do you have the same thing?

Dalton Fabian: Yeah, similar. Yep.

Tim Ulbrich: OK. So Tim Baker, obviously we’ve got one big variable, one big pain point on the table, about $280,000 in student loan debt, which I think as Dalton, as you mentioned, for you, that’s a little bit above the national average, but not too far off, so I’m guessing many people listening are facing a similar situation, especially if they’re in a relationship with somebody else for their shared student loan debt. What else, Tim Baker, what else are you thinking about besides student loans here when you think paint points?

Tim Baker: Well, I guess before we come off of the student loans, I would just ask the question — Dalton, and what’s your wife’s name, Dalton?

Dalton Fabian: Elizabeth.

Tim Baker: Elizabeth. So when you and Elizabeth talk about the student loans and what that looks like for your financial picture, I guess what are kind of the feelings that are centered around student loans? Is it confusion? Is it anxiety? Is there — you know, how do the loans make you feel?

Dalton Fabian: Sure. I mean, there’s a little bit of anxiety just with when you see that number, $280,000. But we both know that we have both have good careers and high income earning potential. So kind of anxious about the amount but know that with dedicated effort, that we can kind of control the student loan debt and pay it off quickly.

Tim Ulbrich: And Dalton, as a follow-up to that, you know, we’ve had people on this show that you know, have kind of gone all in over two or three years and really just minimalist lifestyle, paid off all their loans, and then obviously others — I took a little bit longer — and others say, ‘We’re going to get this done, and we’re going to get it done quickly. But we also potentially want to be balancing some other priorities that we’re thinking about in the future,’ whether that’s family priorities, home buying, etc., travel, vacations. You know, where do you and Elizabeth stand on that spectrum of wanting to get these paid off?

Dalton Fabian: We probably fit somewhere in the middle. So one of the kind of interesting things of being married during your P4 year is that you’re living on that one spouse’s income. And so kind of how we framed that the whole year was kind of let’s learn how to live on this income, and then once I would get a job, all of my income would be going towards student loans or other financial priorities. So that was kind of an interesting dynamic throughout rotations.

Tim Baker: When you talk about the other financial priorities, Dalton, is there other things on your balance sheet, like on the liability side. Do you have credit card debt or car debt or anything? What does that picture look like?

Dalton Fabian: So no credit card debt or car debt. The main other financial priority, which I’m sure we’ll talk about, is buying a home since we rent right now and we’re interested in buying a home at some point in the future.

Tim Baker: OK. So no credit card debt, no car debt. So are both cars paid for, then?

Dalton Fabian: Yes.

Tim Baker: OK. Winning, right? We talked about this on last week’s episode, so that’s great. So no credit card debt, no car debt. We talked about the student loan debt, we talked a little bit about kind of your feelings, philosophy toward paying that off. Other thing I’m typically thinking about, which we talked about before on this show is emergency fund. So you know, we’ve talked before about 3-6 months of expenses, roughly is what we’re shooting for. Where do you and Elizabeth stand in terms of your emergency fund?

Dalton Fabian: So, right now, we’re at about two months. And we definitely want to increase that amount, though, up to the 3-6 months.

Tim Ulbrich: So as we’re starting to formulate a list of goals, Tim Baker, I’m hearing a plan around student loan debt and paying that off. I’m hearing a plan around increasing or building the emergency fund. And then obviously, Dalton had also thrown in there some aspirations around home buying. So what else and other variables or questions are you thinking at this point?

Tim Baker: Well, I think the big one is I think the big elephant in the room is — we alluded to it a little bit — but the, you know, getting the Master’s and how are we going to — is that more student loans? Are we cash flowing that? What does that look like? That would be another big part of this that I would press Dalton on and say, ‘What does that look like for you? And what do you envision?’ So I guess Dalton, what does — in terms of paying for that part of your education, how do you envision that happening?

Dalton Fabian: Sure. So the goal is to pay for that program in cash. So aside from the prestige of Georgia Tech’s like computer science, data science program, that was also one of the considerations was that it’s a very affordable program. So the goal would be to pay for that one in cash.

Tim Ulbrich: That’s awesome. And what is that program roughly going to cost you?

Dalton Fabian: So over the whole program, which I’ll probably complete over two years, it’s $10,000.

Tim Ulbrich: That seems like a good deal.

Dalton Fabian: Much better than pharmacy school tuition.

Tim Ulbrich: Right? I know, I’m thinking of — I don’t know why I was thinking, oh it’s $30,000 or $40,000 to do that Master’s program, so cool. So $10,000, and you kind of also snuck in there the reality that one of the things that you guys have learned obviously while you’re — you got married while you were still in pharmacy school is that you’re living off of your wife’s income, so you kind of put yourself in a position that as you start thinking about achieving these goals, you’re going to try to do them largely on the back of your income, correct?

Dalton Fabian: Exactly.

Tim Ulbrich: OK. And your wife, remind me, is she an accountant? Do I have that right?

Dalton Fabian: Yes. She is.

Tim Ulbrich: Tim, what else? So we have kind of four goals that we’ve set up there — student loans, emergency fund, home buying, cash flowing the education here, the Master’s degree. What else are we trying to get in the pot? Or other questions we have.

Tim Baker: Yeah, I guess the other things would be just, you know, I would probably press about like what are some other things like in the future like major purchases. So it could be a car purchase, maybe having a baby or expanding your family could be some other things that are on the docket. But I mean, typically, typically — and we’re kind of doing this in a very much accelerated mindset, which is great because I think we can kind of compress a lot of the conversations that I have with clients is alright, you know, if we’re a good fit to work together, and we have a nice, clean snapshot of your balance sheet, kind of where your spending is and then we have a nice, clean snapshot of your goals. So obviously, the missing piece here would be to bring Elizabeth in, and similar to what we did in Episode 032 and 033 where it’s kind of find your why that I did with Tim and Jess Ulbrich, we would basically go through and say, what is important to you? What is your why? And then start to build kind of like a success timeline. So you know, over the next two years, if we were to blast forward to May 2020, and we look back over the last two years, what does success look like? Is that, you know, having the emergency fund completely funded? Is it having school paid off completely and not worrying about that? Are we being aggressive towards the loans? So you kind of start to build a picture of success and then begin to work our way through it. So that’s kind of what we do. So obviously, the big missing piece here is having Elizabeth’s voice here and having her be part of this. But ultimately, when we’re building a financial plan, you know, — and this is something that we talked about in Episode 026, which was baby stepping your financial plan, the two things that I look at first is what is the consumer debt look like? And it sounds like for you, Dalton and Elizabeth, that looks good. There’s no consumer debt. We’re not paying high credit card interest fees, we’re not paying that type of thing. And then secondarily, what does the emergency fund look like? And you know, you cited correctly, Dalton, that you know, typically, with a dual-income household, which you soon will be, right?

Dalton Fabian: Yes. Yep. While I’m doing the Master’s program, I’ll be working part-time as a pharmacist.

Tim Baker: OK. So as a dual-income household, you need three months of nondiscretionary monthly expenses, which basically means expenses that go out the door no matter if you work or not, so things like your rent or your mortgage, groceries, utilities, student loan payments, all that stuff needs to be calculated. So if you guys have $5,000 of that that goes out the door no matter what, times that by 3, you need a $15,000 emergency fund. If you’re a single income earner, it’s basically times that $5,000 by 6. You need a $30,000 emergency fund. Now, you can, you know, for me, and it depends on what the strategy that you take, I think there are different areas or shades of gray for that. Typically, you know, we can kind of talk through that in terms of what, you know, you need for your particular situation. The textbook basically says, 3-6 months. So if the credit card and the consumer debt looks good, and the emergency fund is in place, then we can start to look at how can we fund or how can we support the goals that you have of buying a home, paying for Georgia Tech and then have a good strategy in place for the student loans. So everything is kind of built on that foundation of, you know, basically funding your goals moving forward.

Tim Baker: So before we continue, I just want to talk a little bit about our sponsor today, “Seven Figure Pharmacist: How to Maximize Your Income, Eliminate Debt, and Create Wealth,” and it’s actually authored by our very own Tim Ulbrich and Tim Church. And much of what we’re talking about today with Dalton is actually covered in the book. So things like prioritizing your goals, saving for an emergency, elimination of debt, they also talk about things like minimizing taxes and what types of insurance policies that you need. If you’re a pharmacist out there, this book needs to be on your shelf. You have to get it, you have to read it. It’s excellent. So head on over to sevenfigurepharmacist.com. Use the coupon code YFP and get 15% off the book.

Tim Ulbrich: So one thing I wanted to dive into a little bit deeper, Tim, is I mean I’d love to get even more specific about, you know, a potential plan of attack for Dalton on these. So he mentioned he’s got two of those three months, we obviously know the student loan figures. What we haven’t really addressed is, you know, one of the things I like to think about home buying is what would actually be that dollar amount or figure that is needed for down payment. And then how many months do we have until that goal is going to be realized? And then on the education, you mentioned $10,000. Dalton, when would actually those bills come due if the goal is to pay cash for those?
Dalton Fabian: So it would be at the start of the fall semester, spring semester, and then again the next year.

Tim Ulbrich: OK. So roughly $2,500 over each of those four installments?

Dalton Fabian: Right. Exactly.

Tim Ulbrich: OK. OK. So Tim, take us down into the weeds here, then. Like what would you be doing with Dalton or a client in terms of, you know, we’ve got the detail here that he’s going to be working part-time, so we obviously could get to a rough budget of OK, what is that dollar amount? And then how are we going to allocate it? You know, how would you walk through a client of OK, I’ve got these student loans, I’m going in the grace period, do I cue up the emergency fund? You know, do I start a sinking fund for home buying? Do I make sure I have that cash for that tuition bill? I mean, how do you help somebody actually prioritize those, No. 1, and then 2, what I’m thinking about is the processing you really helped Jess and I implement with the sinking funds and actually putting that on automation. Can you talk us through a little bit of that?

Tim Baker: Yeah, so part of it is again, it’s a conversation that we would have in that why meeting. So part of it is, once we kind of get through what are the things that are most important to Dalton and Elizabeth, then — and a lot of the themes are going to be very similar. And that’s one of the things that’s actually cool is that, you know, I think in our world, you know, it seems like everyone, you know, can be — there’s a lot of division there. But I think when we zero in on the things that are important to, you know, a family or an individual, a lot of it is life experience, it’s giving, it’s basically providing for people close to us. And I think once we kind of zero in on those things, then, you know, one of the things that we’ll talk about is kind of what you said, is OK, what are the major purchases that are kind of going to be up on the horizon? And what’s the timeline? So we talked about the $10,000 for the education, the home purchase. So one of the things I would say is, you know, what would you guys expect to pay for a home if you’re staying in Iowa? Are you doing this remotely, Dalton? Or are you actually going to Georgia Tech?

Dalton Fabian: Yeah, so this is an online program. That’s one of the reasons it’s $10,000.

Tim Baker: So we would kind of drill down into like what do you expect to pay for a home? What kind of down payment do you expect to provide? When’s the timeline for that? And basically back into that. And obviously, a big part of this is, you know, Dalton, when you’re working full-time, what do you expect to basically take home from that? And then if that number is, you know, if we say that number is $5,000 — and I’m just making a number up — basically our goal here would be to divide and allocate that $5,000 among the goals. And if you know, that kind of would be what this looks like. So if we look at your particular sets of buckets, you know, obviously I would say, you know, plussing up the emergency fund to three months I think would be the first thing that I would tackle. So get that, put that into high yield savings account, and then call it a day. Obviously, a near term goal would be let’s basically run the $2,500 into a savings account, get that money in place, and then you know, figure out how much we need to save per month to get to the next $2,500 push. So that would be part of this. And then, you know, in terms of — Dalton, what do you guys anticipate in terms of your home buying timeline? Is that something that’s going to happen next year, 2020? What do you guys anticipate for that?

Dalton Fabian: We’re expecting probably in the next five years or so to make that type of purchase, so looking at potentially reapplying for residencies next year, so that would be a couple year process. And that potentially lead us out of Iowa, but then planning on coming back to the Des Moines area. In terms of pricing — so out here in west Des Moines, the real estate is a little bit more expensive than other parts of the metro area, so probably housing would be $300,000-350,000.

Tim Baker: OK. Is the expectation to kind of come to the table with the 20% down, which would be about $70,000 if it’s a home for $350,000? Or what’s your thought there?

Dalton Fabian: Yeah, so our goal is definitely to do the 20% down to kind of avoid the PMI.

Tim Baker: OK. So obviously, so looking at that, one of the things that we would consider is do you look at with a five-year kind of timeline, you know, horizon, do you save that in, you know, a regular high-yield or do you actually go and, you know, open up a brokerage account and invest and you know, take some, you know, risk with the market and see if the market can return something a little bit better than 1.5%? So that’s obviously one of the questions, you know, or things that we would talk through is does it make sense to go that route? Or does it just make sense to, you know, take the 1.5% over the next five years and go with that? So that would be probably one of the things that we would talk about. And then finally — and again, this is going to figure out, we would have to determine where this fall on the timeline is, you know, what is the overall strategy with the student loans? Is it, you know, is it a forgiveness play? What does that look like for PSLF or non-PSLF? Is it an aggressive strategy where we start knocking through some of these goals and then we become more aggressive in the future so kind of a Phase One or a Phase Two plan? So for you guys, you know, when you guys — you said initially that you kind of fall somewhere in the middle. Are your loans currently in repayment now? Or no? Your wife’s.

Dalton Fabian: So my wife’s, yes. Hers have been in repayment since November 2017 because she went back to grad school to get her Master’s.

Tim Baker: OK. And then is she currently in like a standard plan? Or one of the income-driven plans?

Dalton Fabian: She’s in the income-driven plan.

Tim Baker: Do you know which one she’s in?

Dalton Fabian: Pay, I believe.

Tim Baker: So and then typically, those are, you know, pay or revised pay-as-you-earn is going to be typically the two income-driven that we like, just depending on what the strategy is. So we would basically do a, you know, kind of a student loan analysis and figure out, basically match your strategy with the goals that you’re trying to achieve. So that could be anywhere from keeping the loans in the federal system and driving down your adjusted gross income just so you can have, you know, the least amount paid toward the loans. Does she work for like the government or a 501c3 or anything like that?

Dalton Fabian: No, she does not.

Tim Baker: So do you guys anticipate, you know, seeking forgiveness or anything in the future?

Dalton Fabian: No.

Tim Baker: So if that were the case, then I would probably look at probably staying in — and similar with you, Dalton, you know, as you get through your grace period, enrolling in a income-driven plan and probably drive the payment down as much as possible. And for your loans, the income-driven plan, if you’re at, for $190,000, your loans are probably going to have a payment around $900, $900+, so that would probably be part of the equation. And then what we would do is stick with that until some of these other goals are funded and then with the potential to pivot out and be more aggressive, either through a refinance or something like that in the future. So you know, given your situation — and we did a few case studies with this in the student loan course, it would probably be a two- or a three-phase where we would say, OK, between now, you know, year, for Years 1 and 2, as you go through school or if residency is in the future, stay in this particular repayment plan. And then Year 4 or 5, let’s look if it makes sense to refinance and save and maybe be a little bit more aggressive on the loans at that point in time. So that’s essentially where we would look for, you know, funding those particular goals.

Tim Ulbrich: I would agree. And just to build on that, Tim, especially you mentioned the residency piece, and since there’s kind of these variables in play that he may end up going back and doing residency, which may mean, Dalton, a move right? Potentially that has other variables of moving expenses or costs or unknown variables. I think longer term, you know, depending on the situation, a refinance may be the play. But obviously giving yourself that flexibility to see how that shakes out, knowing that you can go into an income-driven plan, pay extra, pay down the loans and then seeing what happens in the next year or so, especially as you navigate some of the grad school options and whatnot. So Tim, it’s kind of taking me back to the, you know, at the end of Module 1 and into Module 2 of the course where we come up with this idea of finding your number. How much can you put towards your loans each and every month? And then you’re really just executing the plan. And as I hear Dalton’s storyline, kind of the way I’m starting to think through this obviously, and we want to get Elizabeth’s input as well, is that they’ve identified his income is kind of going to be the portion for these various goals. So what that dollar amount is, and then you start dividing it up between, OK, we’re going to finish off the emergency fund, we’re going to save for the education, you know, maybe x dollars per month over five years goes toward a down payment, and then we’ve got this chunk of money that’s available and ready to go towards student loans. And then that repayment strategy may pivot as income changes and residency does or does not come into play. So talk through, just briefly, I felt like it was a huge win for Jess and I — we, Dalton is getting into this point 10 years sooner than I did. So Dalton, No. 1, that’s awesome. But you helped Jess and I get to this point, Tim, where we kind of were able to finally articulate what these things were, put a dollar amount to them, and then you really helped us establish this idea of sinking and sort of automating it. Can you talk through that for a minute?

Tim Baker: Yeah, so, I mean — and I think that’s really the missing piece here is not having Elizabeth and her input. I think ultimately, I don’t really do anything special except ask the question. And a lot of us, either we feel uncomfortable, you know, talking to our partner about this or it’s just not a conversation that is naturally brought up. It’s kind of the same thing of like, you know, estate planning or like who’s going to take care of our kids if something were to happen to us? Or how much life insurance? It’s just not something that comes up in the natural course of conversation. So I think for me is to ask good questions and really get out of the way. But, you know, I think once we kind of identify those buckets, I think for a lot of this is to identify or try to put a number to it in terms of what is the most important thing? So if it’s more important to be in a home in five years versus being aggressive on the student loans, then you know, if I’m doing some quick napkin math, if you’re student loan payment for at least Dalton, if I look at yours, it’s say $900, and then we know that it’s going to go out every month, and then if you want to save $70,000, which is 20% of $350,000 in five years, if we don’t account for any type of interest at all, that’s basically $1,167. So if you combine that with your $900 payment, that’s $2,066. So depending on what your pay looks like, that’s where the conversation will begin and end. Now, essentially, I probably would say, start with the emergency fund. Get that plussed up, and then basically turn that off. But when we talk about basically setting up the emergency fund and sinking funds, what I like about having multiple sinking funds is although money — and we talked about this term before — money is fungable, meaning it’s interchangeable. So we look at money differently depending on like the sources. So if I find $20 in my couch, I’m probably more likely to spend that money on something frivolous, you know, and similar to like a bonus that we get versus if that is something that’s just income. So although money is interchangeable, for clients that I see have the best success is be able to say, OK. This is my emergency fund. It’s labeled emergency fund. I have $15,000 or $20,000, whatever it is. If something happens, if it hits the fan, I have that money. But then I think it’s also equally powerful, whether it’s an investment account or it’s a high-yield savings account, a sinking fund, that it says, this is Dalton and Elizabeth’s first home purchase fund. And every month when I log in, I can see, OK, that account is worth $20,000, $25,000, $30,000. It’s the same thing with, you know, your cash, the cash for your home. So we probably would set up an education fund that would probably just be a sinking fund for that that every quarter, we know that we need $2,500. So we’ll basically infuse the cash, pay it out of that fund, and then basically backfill that with the $2,500. And then when that goes away in two years, then we have that money to basically either throw it towards the house or whatever. So I like the idea of basically having an allocation sheet towards these savings to say, OK. What is the target? What’s the target amount that we need? Where — how much is the monthly deferral? So is that $250 a month of the $3,000 worth of income? And basically, work through it very systematically like that because I think if you’re kind of willy-nilly, you don’t have set figures, then the money gets lost. You know, if you say, oh, just throw it into a sinking fund, and that sinking fund is partly for education, partly for an emergency fund, partly for the down payment for a house, then we can’t really see straight lines. So that would probably — we talk about setting up buckets, those would be the buckets that we would set up, and we would basically just try to figure out how much to fill that, you know, every month. And that’s the purpose of the sinking fund.

Tim Ulbrich: Yeah, what I love about that too is just hearing you talk and thinking about the work you’ve done with Jess and I, I mean, part of the plan is prioritizing and articulating goals, but then the whole other part of this I’m thinking about even looking at Dalton’s situation, is helping execute the plan and the accountability of the plan. And I think there’s so much power and value in having somebody help you through that. And Dalton, I just love that you’re thinking about this, that you and your wife are talking about it. I love that you’ve articulated these goals of tuning up the emergency fund, paying cash for school. You know kind of what you’re looking at home buying, you obviously have inventoried your loans, so you know the details. And I think for those that are listening that maybe aren’t at that point, that’s really step No. 1 is kind of knowing what you’ve got. Obviously, debt-wise, knowing your current financial position and then getting organized with what those goals are and then obviously, at that point, you can start to prioritize and put a plan of action around them. So Dalton, really appreciate you coming on the show and appreciate you being willing to share your story. And I think many others listening are going to value from hearing the position you’re in and just hearing the thought process of how we went about this episode and asking the questions that we did. So thank you so much for coming on today’s episode. We appreciate it.

Dalton Fabian: Thank you for having me.

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On Episode 45 of the Your Financial Pharmacist Podcast, YFP team member Tim Church and Certified Financial Planner Tim Baker discuss some of the key features of disability insurance and walk through how to get the right coverage.

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Several reputable companies offer disability insurance but it can take a lot of time and energy to get multiple quotes. YFP has partnered with Policygenius, an online independent broker to help you quickly shop multiple companies for the coverage that’s right for you. They have a very user-friendly interface and their team will help you through the entire process from application to signing a policy. You can even get an estimate without entering your personal information https://www.policygenius.com/yourfinancialpharmacist

Episode Transcript

Tim Baker: What’s up, everybody? Welcome to Episode 045 of the Your Financial Pharmacist podcast. I am taking the host seat today. And I’m joined by Tim Church, who hasn’t been on for quite a bit. Today, we’re going to be talking all about disability insurance. Last week in Episode 044, Tim Ulbrich walked down the path for him and his family, talking life insurance and term life insurance, more specifically. So this week, to kind of continue on the insurance theme, we’re bringing on Tim Church, and we’re going to talk all about disability insurance, what that picture looks like for him, how to basically price disability insurance and what that looks like, and hopefully you walk away from this episode with a little bit more confidence in the disability insurance arena. So Tim Church, welcome back to the podcast.

Tim Church: Thanks, Tim. Great to be back on as always. I thought you guys did an awesome job last week talking about life insurance. And I think that and disability insurance are probably some of the least sexiest personal finance topics, maybe just a step above taxes, but obviously, I think it’s something that’s important.

Tim Baker: Yeah, it’s funny because like when I meet with clients, you know, one of the things — and we’ve talked about this in terms of how I price working with clients, it’s about income and net worth. So you know, what I tell clients is when I give them recommendations, I’m trying to figure out, OK, what’s the best way to help them grow and protect their income and grow and protect their net worth while keeping their goals in mind. And the life insurance and the disability insurance are all about that. And it’s definitely — I know you guys talk about in the “Seven Figure Pharmacist,” it’s definitely a defensive posture because you’re basically trying to protect what you have. So it is super important, and I think it’s one of the more overlooked things that pharmacists, at least in my experience, will have in place with their financial plan. So we’re going to get into disability insurance and kind of unpack that whole issue. But before we jump into that, why don’t you tell everyone what’s been going on with you and what you’ve been up to since the last podcast?

Tim Church: Well, I’ve just been kind of hanging out here down in Florida, getting some nice weather, starting to warm up. But other than that, I’ve got three words: Student loan course. So basically, I’ve been knee-deep, trying to get everything ready for our beta group that’s going to be starting in a week or two here. And really, it’s just been a labor love and really excited to see it all come together. Looking back when we first started out the outline, I think I underestimated and think all of us did, all the moving pieces that were going to be required to get it up and running and how many Saturday morning marathon sessions that you and I would have. But basically, you know, it’s been fun. And I think it’s interesting how every time you and I talk, we somehow keep adding more and more content. But CEO Tim Ulbrich is basically putting the hammer down and saying, we’ve got to get to the finish line, which I think is a good play.

Tim Baker: Yeah, and when we had our last T3 conference kind of in Baltimore, this was one of the big points that we were working on is working through the course, and it’s always great to have you and Tim in Baltimore and working through this stuff. I think when we did that way back when, I don’t know if it was March or February or when it was, but we thought we were pretty close, and then we looked at it some more, and we’re kind of at the point where we’re shaving the ice away from this perfect statue, this ice statue. So yeah, I think for me, I just need to sit down and get my videos finalized. I feel like they’ve been there waiting to be recorded. So I’m anxious to get that done, and I think that will be done this week. But we still have some spots left for the beta group, so if you still want to get in on that, it’s 50% off, so you can go to courses.yourfinancialpharmacist.com and enter code LOANRX. So go to courses.yourfinancialpharmacist.com and enter code LOANRX, and that’s for 50% off. And what we’re really trying to get at here is is this course delivering everything that we say it will? And basically, what we believe that this course will do is for one of the major pains for pharmacists, 89% of pharmacists that graduate pharmacy school will have loans is really to provide some type of clarity with their loans in terms of inventory, what they actually owe, who they owe, inventory their feelings about the debt, and then come to a strategy that basically fits their situation and what — there’s a lot of information and sometimes misinformation out there in terms of the student loans and the forgiveness programs out there, and then really how to optimize your situation and get everything you can, either out of forgiveness or even a nonforgiveness strategy. So Tim, do you have anything else to add on student loans before we jump into disability?

Tim Church: No, I think you covered it pretty well. I mean, just excited to get it off the ground. I think it’s going to provide a lot of value to people.

Tim Baker: Yeah. So do I. OK, so let’s get into this. So I think one of the things that we probably should talk about first — and I think this is one thing that we often talk about with financial planning in general is why should we have disability insurance? So Tim, for your particular situation, you know, you look at your financial picture. What are the big reasons why you think disability insurance is important?

Tim Church: Well, I think what it comes down to simply is could I survive if I suddenly was unable to work? And whether that’s because I got in an accident or because of an illness. And at currently, basically it’s not going to happen. My wife and I are dependent on me bringing in an income right now. And she works as well, but it would be very tough, especially with still paying off her student loans and just to be able to live the lifestyle that we currently have. So I think that’s really the biggest thing when I think about disability insurance.

Tim Baker: Yeah. And I think for a lot of people, one of the things that we mentioned in the lead-up here was that for a lot of pharmacists and really, young professionals, it’s one of the things that is often overlooked. And I think part of it is is that feeling of invincibility, part of it is it just doesn’t make the cut when we talk about all the things that we have competing for our income. But it is really imperative that pharmacists have it in place. And like we say time and time again, the average pharmacist will make $9 million over the course of their career. $6 million of that will flow through their bank accounts. And you know, our listeners, Tim, you and Andrea, you guys spent a lot of money to get this degree, which affords you the ability to earn more than kind of the average American. So I think it’s best to protect that. And outside of kind of the time factor with a lot of my clients, their second biggest asset is their ability to earn. So I think a proper policy in place, whether it’s between the employer-provided or a supplemental disability policy, which we’ll get into, I think it’s imperative for this part of the equation. And just to give you guys some context, you know, life insurance is typically — I don’t want to say it’s the sexy part of insurance because I don’t know if there is a sexy part of insurance — but life insurance, typically when people think of insurance, I think, you know, and buying policies, they think of that because it’s, oh, I have a $1 million policy or a $500,000 policy. It resonates more with people. But disability, you know, disability insurance I think is as important, if not more, in the sense that you know, according to the Social Security Administration, 25% of today’s 20-year-olds will become disabled. And I think it’s for a period of at least three months before age 65. And we know that a lot of people out there don’t have the prerequisite emergency fund or things that they can do to survive that three months or even beyond. So again, it’s important to have that policy in place.

Tim Church: And I find, Tim, is that a lot of my friends and colleagues, they seem to be very underinsured in this area. And when I say that, I mean they basically either don’t have a policy or something that’s very minimal, and I think it kind of goes back to that feeling that you know, you may be young and healthy or that something really bad would have to happen, but what’s interesting is I actually personally know some pharmacists who became disabled and couldn’t work for over a year. And a couple of those were really freak accidents where they experienced some head trauma and basically, they had cognitive deficits and they weren’t able to work because of it. And I know another pharmacist, she actually had really bad rheumatoid arthritis. And that really put her in and out of work, and sometimes she was only able to work part-time. But these are actually real cases that I know of where I don’t know their situation, but essentially, they would have needed disability insurance unless they had some significant wealth already accumulated.

Tim Baker: Yeah, and it’s crazy — and I shared this story last week about a colleague working with clients that were widowed or widowered — I don’t know if that’s a word — but basically, they had life insurance in place, and thank goodness that they did because they had three young kids. But you know, this usually hits home when you know someone or you have real life experience. And it’s really not a question of if, it’s when for people to come into contact that are going to go through this type of thing. So you always think that it’s going to happen to someone else, and I think there’s a bias out there, and I should know what that bias is, but you always think it’s going to happen to someone else until it happens to you.

Tim Church: Overconfidence.

Tim Baker: Yeah, and maybe it is overconfidence. So I think it’s definitely important to kind of hear that and just take — like again, a lot of our listeners, you guys have worked so hard to get to a point where you can earn that six-figure income. And you want to protect it for the sake of your lifestyle and for your family, you want to make sure that you’re protecting that. And it really doesn’t take much in terms of effort to kind of get the protection that you need. So hopefully, this episode brings a little bit more clarity to that. And I know you guys brought it up in “Seven Figure Pharmacist” quite a bit. I think it’s hopefully something that, you know, maybe after the third or fourth time of us talking about it, it empowers our listeners to get that insurance in place.

Tim Church: Yeah, and I’m always curious as to the reasons why people don’t. And I think we talked about just that feeling of invincibility, especially if you’re young. But I think the cost also sometimes deters people. When you look at life insurance and some of the other insurance coverages, we’ll get into this, but disability insurance is a little bit more expensive than some of those. And so when you look at just the cost itself, you’re looking at that and saying, ‘Wow. Can I really afford that much extra?’ But then you have to look on the flipside is really can you afford not to have it?

Tim Baker: Yeah, and it should just be baked into your monthly budget, in a sense. And one of the things of life is that, you know, back in the day, you know, your employer used to cover it just like they covered a lot of other things, and it’s not necessarily the case anymore. So again, it’s very important to kind of take control of the situation and get the type of policy that is going to work for you. So what do you think, Tim? Do you think we should kind of break down the types of policies?

Tim Church: Yeah, let’s unpack that. I mean, one of the things that I’ve seen just in my own research and things that we got ready for “Seven Figure” is that disability insurance policies can be very complex. There’s a lot of extra features, add-ons, things like that. And I know when I applied for coverage before, it was like buying a car. You have your base model, and then there’s like 20 upgrades, features, things you can add. So Tim, can you kind of break down the two basic types of disability insurance?

Tim Baker: Yes. So the two broad types of disability insurance are going to be what’s called short-term disability and long-term disability. And I would say not to get caught up in the semantics of what short-term and what long-term is. It’s kind of a moving target for every carrier, every company out there. Essentially, what you want is a policy that covers you in the event of your disability. And we’re going to talk through some of the different aspects of that. Typically, you want a longer term disability policy in place that will last a period of years, if not until basically retirement age. But there are other policies out there that are more kind of stop gaps that a short-term policy would fill in for. So those are the two broad ones are short-term disability and long-term disability.

Tim Church: And wouldn’t you say, Tim, that when you’re looking at kind of that benefit period or the time that you would have the disability insurance coverage, it really kind of comes down as how long would you actually need those benefits in terms of you know, could you accumulate enough wealth by the age of 50, 55 and maybe not need it all the way until retirement? So you could break it down, if you wanted to, in terms of where you would expect to be retired or when you would actually need that income support. Is that a good way to look at it?

Tim Baker: Yeah, I mean, I think what I often say is that I would recommend just like we would recommend an emergency fund or life insurance policies or whatever, I’m going to recommend basically what the textbook suggests. So typically, the textbook would say, ‘Get a long-term disability policy that would last until your Medicare age,’ which would be like 65 — I think it’s 65 — until retirement. So typically, that would be where we would start with a client. And then from there, you know, you might look at that policy like, ‘Gees, Tim, that’s like really expensive. I don’t think I’m prepared for that.’ And that’s kind of when we start looking at some of these other variables that we’ll get into or these key features that we’ll get into that we can slide around to see, OK, what is more in line with your budget. But typically, the textbook would say, ‘Have a policy until retirement age.’

Tim Church: Gotcha. And then when we talk about how much coverage you actually need, when you break that down, so how do you usually walk through clients to talk about the actual needs?

Tim Baker: Yeah, so typically, you’re going to want roughly around 60% of your gross income. So that is before taxes are taken out. And typically, it’s quoted or it’s priced based on monthly amount. So if you make $10,000 per month, you’re going to want something that’s going to cover you for around $6,000. And the reason that that is is you know — and it depends on who is actually buying the insurance, whether it’s you or your employer. It depends on if your employer buys it, then the benefit comes to you taxed. If you buy it, so you’re buying a policy with after-tax dollars, the benefit comes to you as tax-free. But 60% is typically the number that you’re going to want to look at. But again, it’s the same thing with the coverage period. You might get to that point and you say, ‘Wow. 60% until I’m retired is going to cost me this much.’ And that may be where you say, ‘Well, I can probably get by with 50% or 40%,’ and it’s basically a conversation that I have with clients. Obviously, I want to push them to protect as much of their income as they can, but at the end of the day, it is a cash flow concern.

Tim Church: Yeah, and it comes down to also too what kind of lifestyle would you want to have if you become disabled? And do you need that amount? And I guess that’s probably where you can talk with your clients about determining maybe some more specific needs, client-to-client and just kind of asking, do you want to maintain your current lifestyle? Would you be OK if it was reduced a little bit?

Tim Baker: Right. Exactly. And then that’s kind of where you know, the more of the human side comes into it is if a disability event were to happen, what do you see yourself doing and that type of thing. And how do you see yourself living.

Tim Church: Yeah. So we talked about coverage amounts. So the percentage of your income that you’re actually getting a policy for, so that’s going to have a big impact on the cost of the policy. And then also how long those benefits that you would actually receive. And then the next thing that comes into play a lot is the elimination period. So basically, what’s the waiting period between the time that you put a claim in for your disability and you actually receiving benefits. And sometimes, I think that’s where it can be interesting to talk about do you need a short-term and a long-term disability policy? Or could you just have the long-term disability policy? And I guess that really comes down to is whatever that elimination period is that you choose, is do you have a good emergency fund to cover you in that gap or that window?

Tim Baker: Right. So the elimination period or the waiting period or you could think of this as like a deductible that you pay in time before your benefit gets to you should match pretty closely to what your emergency fund is. So if your emergency fund reserves is for three months, 90 days, which I think is typically best practice, especially for a dual-income earner, that’s probably where your elimination period can come out. But again, you can toggle this in a way that you can get policies that have elimination periods after 30 days or you can wait a whole year, and that basically makes the period or the premium a lot cheaper if you wait a year. But then you’ve got to ask yourself, if I become disabled, can I wait a whole year to get my benefit? And for a lot of people, it’s no, but it depends, again, on a case-by-case basis. I would say best practice is probably look at 90-day, so a three-month waiting period once you submit your claim and then price the policies from there.

Tim Church: One of the other things that typically comes up on policies for disability insurance is own occupation or gainful occupation. So can you talk a little bit about that, Tim?

Tim Baker: The big definitions — so these are basically definitions of disability. So your policy is going to have a definition. And the big ones out there are own occupation, which is basically the inability to engage in one’s own occupation, so like a pharmacist. And that’s typically the most expensive because it’s basically the most limited in terms of your ability to receive that or the most inclusive for your ability to receive that benefit. And then there’s something that’s called any occupation, typically referring to is basically if your policy is any occupation or any occ, you might hear, or own occ. Any occ is the inability to engage in any occupation. So this is if you’re a pharmacist, Tim, if you have a policy that is any occupation and you become disabled, but you can’t necessarily be a pharmacist. So maybe you have some, like you said, cognitive disability, but you can still be a greeter at WalMart, as an example, then your claim for your disability insurance would be denied because they could say based on the definition of disability, you can still hold gainful employment, but you just can’t do what you’ve been trained to do. So any occupation is one that is more liberal in terms of your durability to say whether you’re disabled or not. And to me, I would say this would be one that’s definitely kind of a nonnegotiable. I would want clients to make sure that you have an own occupation because think of all the things that you could theoretically do for work. And for you to be denied that benefit would be a tragedy, I think.

Tim Church: Yeah, and it kind of goes back to what we talked about. I mean, how many years of school and training do we go through in order to be able to generate that income? And so of course, you’ll want to protect that and that ability to make that salary.

Tim Baker: Yeah, and some of the other definitions out there that you might see would be like modified any occupation, which would basically be inability to engage in any reasonable occupation that one might be suited by education, experience and training. So that’s maybe kind of an in-betweener. And then the other one you would see is social security definition of disability, which is probably the most stringent. And they basically define that as a mental or physical impairment that prevents the worker from engaging in any substantial gainful employment. The social security definition of disability is the most stringent. So if you have a policy that follows that guideline, you’re definitely going to want something outside of that policy to cover yourself.

Tim Church: Before we continue with the rest of today’s episode, here’s a quick message from our sponsor.

Sponsor: As a pharmacist, you’re going to make millions of dollars over your working career, and you’ve worked hard to get where you are. Take a minute to answer this question: Would you be able to support yourself and your family if you were suddenly unable to work because of an accident or illness? Disability insurance provides you with money to cover your bills and expenses if you’re unable to work. Your employer may offer some coverage, but it may not be enough, and it may not follow you if you were to change jobs. That’s why it can be a good idea to have a private, long-term, disability insurance policy. We want to provide the YFP community with an easy, one-stop solution to help you get the coverage that you need. Therefore, we have partnered with PolicyGenius, America’s No. 1 independent, online insurance marketplace, so you can quickly get quotes from reputable companies rather than wasting time having to make phone calls and shop multiple websites online. You can get your estimate today by going to yourfinancialpharmacist.com/insurance. That’s yourfinancialpharmacist.com/insurance.

Tim Baker: Now back to the Your Financial Pharmacist podcast. So Tim Church, I know we’re talking lots about these different features. Why don’t we jump onto PolicyGenius — and actually, listeners, if you go to yourfinancialpharmacist.com/PolicyGenius, you can actually go through the process that I’m going to take Tim Church down. And just to kind of reiterate this, I talked about this with Tim Ulbrich in terms of the life insurance. You know, one of the reasons we like PolicyGenius is because when you get on there, you’re quickly seeing how clean their interface is. So a lot of these insurance companies that I worked with in the past, you know, their websites are difficult to navigate and just not great. And I guess I’m more of an Apple snob, so I like nice, clean interfaces. And they don’t disappoint in this regard. I think more importantly, you know, from being a fee-only guy, not really liking the commissions, their agents that you might interact with do not get paid a commission. They’re basically paid a salary, so not really incentivized you to put you in a policy that is going to be in your best interests and not yours. And then the other thing that I like is they’re more or less a broker. So they can go out to all of the best companies out there and price the insurance carriers and quote the insurance carriers from across, basically across the board. So you know, for these reasons — and I would say too is when I work with them for clients and I’m sure with our listeners, if you have a question — and the education centers there are great — but if you have a question about your policy or about the process, super eager to help and super responsive, even if you have existing policies, they’ll look at that and kind of give you some advice. So I’ve been nothing but impressed with them in terms of being a good partner for Script Financial and I know with Your Financial Pharmacist, I think they’ve taken care of some of our listeners out there, and we appreciate them and their place in the space of insurance. So Tim Church, are you ready to kind of hop on here and do this thing?

Tim Church: Yeah, let’s do this.

Tim Baker: OK. So again, you can go to yourfinancialpharmacist.com/PolicyGenius and basically, follow this. And Tim, the first page is going to basically take us to life insurance or disability insurance. So obviously, we’re going to go through disability insurance on this episode. So you are a male, what is your date of birth?

Tim Church: 08/14/1985

Tim Baker: You reside in the state of Florida.

Tim Church: The Sunshine State.

Tim Baker: Alright, so the next page is going to be talking about your occupation. So what’s your occupation, Tim? I forget.

Tim Church: Professional drug dealer.

Tim Baker: Alright, so pharmacist. You do work at least 30 hours this week in this occupation, which is unfortunate. How many years have you worked in this occupation?

Tim Church: So a little over seven.

Tim Baker: OK. And then highest level of education? So we have basically JD or MD or PhD.

Tim Church: We’ve got to get on them about that, about putting a PharmD selection, right?

Tim Baker: Yeah, I’ll write a strongly worded email. And then your individual income, so don’t income from a spouse or partner. So what’s that?

Tim Church: So base salary is about $125,000.

Tim Baker: OK, $125. And we’re going to assume no existing coverage. So let’s hit next here. OK. So basically, we’re going to be talking about selecting your monthly benefit. So the default here will default to 60%, which is basically the textbook recommendation. So if you pay the premium, which you will in this case, you’re going to get all of the benefits. So in your case, the recommended benefit or 60% is going to be $6,100 per month.

Tim Church: And that sounds pretty close to what actually my net take-home pay is. So that seems pretty reasonable or realistic of what I would need.

Tim Baker: Right. And that’s kind of the idea is to match that. Now, you know, listeners can’t see this, but on the page, basically it says for a 42-year-old male living in Florida, the monthly range, so this is kind of the first place where you’ll see kind of a quote, so that is $111-151. And the plan features, it says existing coverage of $0, benefit amount of $6,100, a waiting period of 90-days and the benefit period up to age 65. And then this is own occupation, residual disability coverage, which we’ll talk about, and then non-cancellable feature, which we’ll talk about. So this is kind of like the first page where you see more or less, it gives you an idea of where we’re going. So it asks the question, do you expect your income to increase significantly over the course of your career?

Tim Church: I hope so.

Tim Baker: So we’ll put yes. And the reason that we do this — and this is a good point maybe to discuss briefly about employer-provided disability insurance and then basically individually owned disability insurance, which is what we’re doing now. So if you were to answer yes to this question, basically they’ll run quotes with a future increase option, which allows you to increase your benefit amount when your income increases, regardless of any changes in your health status. So the example here is if Tim knows that “Seven Figure Pharmacist” is going to continue to sell, and you’re going to sell it to every pharmacy school out there, whatever the case is, and you’re making a lot of money, you want to make sure that your benefit matches kind of the income that you’re pulling in. So that option gives you the ability to buy more. Secondarily, if you have an employer-provided benefit, they’re going to pay you some type of benefit, which is going to be taxed because they pay the benefit of the premiums, but if you were to leave that job, and you go to another pharmacy job that doesn’t provide disability insurance, then the policy that we’re buying now will give you the option to basically buy more or a future increase option to kind of make up the gap. So basically, that supplemental policy that you would buy now becomes your main, your primary policy and will make up the gap in terms of what you need. So hopefully that makes sense to our listeners out there. So now we’re going to talk about the waiting period. So this is basically that time deductible. And this particular tool will default to 90 days. So policies have waiting period of anywhere from 60-365 days. So if it’s a 60-day waiting period, then that’s typically a higher premium because you’re getting your benefit quicker. If it’s 365 days, you’ll get your benefit a year out. And that’s typically makes the policy a lot more affordable. So Tim, what would you like in terms of your waiting period?

Tim Church: Given I have a pretty decent emergency fund, let’s go put that at 180 days.

Tim Baker: OK, so you’re going to move it out a little bit. OK, so then the benefit period, so basically this is how long the policy will pay you if you become disabled. So policies typically have benefit period of two, five, 10 or up to retirement age, which could be 65 or 67 for a lot of our listeners. Obviously, the longer the period, the higher the cost of the benefit. So what would be a good age for you, Tim?

Tim Church: So I think the default of 65, that’s a good place to start.

Tim Baker: OK, I agree. OK. So then this next page is basically wrapping it up. So it does include own occupation, so this is your occupation. It also asks you about a residual disability. So basically, these are riders or clauses in the disability, and what the residual disability asking you is basically saying, do you want to be paid for partial disabilities that could potentially cause loss of income but doesn’t necessarily prevent you from working completely. So typically, the default here is to say yes. And then the final question is do you want it to be non-cancellable, which basically means as long as you pay the premiums, the insurer can’t cancel the policy or change the premiums or change the benefits. So you basically lock into all aspects of your policy. So typically, you want that as a yes as well. So is that good, Tim?

Tim Church: Yeah, that sounds good. And I was wondering, Tim, if this is a good point to talk about that if you have coverage through your employer only, and let’s say you switch jobs and your new employer doesn’t cover that and you have to get your own policy, you’re probably going to also have a health evaluation. And if you’re not as healthy as you were when you had the previous policy, this could really have a huge impact on cost and your ability to even afford a policy like that. And so even like life insurance, this may be a point where it’s good to even have something outside of your employer, just so you can avoid having the reevaluation.

Tim Baker: Yeah, it’s a great point. So that particular rider, I think if you know that potentially could happen to you or you suspect that could happen to you, I think it’s good to have that in there, so that’s another great point. And actually, Tim, the next part of this just basically asks you some basic health details. So unfortunately for these policies, pre-existing conditions are not covered. So if you have something that could potentially disqualify you, you know, as an example, if you have arthritis and then you submit a claim for arthritis, that won’t be paid by the insurer. So that’s something to be aware of. So the next question, Tim, is going to basically ask you about some conditions like asthma and sleep apnea. I know you’re a healthy guy, so instead of kind of listing all these out, we’ll just skip through those. Is that cool?

Tim Church: Sounds good.

Tim Baker: OK. So now we basically get to the end here, and your quote for long-term disability coverage is going to basically be $115 and $155. You’ll receive a benefit of $6,100 a month up to age 65 after a waiting period of 180 days. And then, and this page, you basically can toggle your all those things that I just listed out, so if you say, ‘Hey, I can get by with $5,000,’ or ‘I want my waiting period to be 90 days,’ it’ll adjust that period. But from there, you basically will go out and put in kind of your name and your email and some contact information to go get actual rates from, you know, insurance carriers like MassMutual or Guardian or some of the other ones that are out there. The tool is great in terms of giving you an idea of where you’re at to get rate proposals and actually receive those and then move forward on your policy. So Tim, does that give you a sense of kind of the process forward for disability insurance?

Tim Church: It sure does. And I think one of the things to mention here, Tim, is that if you use PolicyGenius to get life insurance, you can actually get quotes from individual companies. But for disability insurance, it’s a little bit different because you’re going to get a range of what it could cost you. And basically, PolicyGenius looks and they partner with some of these companies, and they’re trying to find you the best deal. And that’s something that one of their agents will actually provide to you.

Tim Baker: Yeah, and basically, they explain that on the website of why is it a range instead of an actual price. And they’re going to look at all the different riders and things like residual disability and own occupation, and the proposals will try to get that back to you in terms of what the policy offers. So it’s a good point. You know, one thing that I do want to circle back on before closing up here for the day — one thing I do want to circle back on is you know, a lot of pharmacists out there do have disability policies, and you know, how does this all play into, you know, buying your own? So I would say in general, you typically, if you do have a long-term and a short-term care disability policy through your employer, I view that as a benefit. OK, so Tim Church, your quote comes out to between $115-155. Is that more or less what you expected when we started going through this process?

Tim Church: Yeah, I mean, that’s essentially pretty close to what I’m actually paying for my policy now. That gets me almost the exact same benefits, up to 60% of my income. So that’s pretty — at first, I will say, after I’ve gone through the process, it’s not very shocking. But initially, it was because it’s significantly more than life insurance that I pay for and some of my other insurances. So it’s definitely a lot more expensive than some of the other things out there.

Tim Baker: So I think another for listeners to be aware of is a lot of your employers will provide disability insurance. And typically, short-term disability insurance is you know, it’s kind of icing on the cake. Typically, we don’t advise clients to go out and buy a short-term disability policy. We’ll basically say, you know, to make sure you have a good emergency fund. From a long-term disability policy, if you do have long-term disability through your employer, know that the benefit is probably not going to be enough to kind of cover your needs. You know, also understand that it probably makes sense to buy a supplemental policy to your employer policy, so a supplemental insurance policy that’ll be maybe a reduced benefit or basically to give you some additional coverage in case you do leave your job or you want to have that future purchase option in there. But again, the reason that you get a supplemental policy is the benefit might be too small, the benefit period may be too short, or it’s not the right definition — so like any occupation versus own occupation, and you want to make sure you have own occupation in place. And again, you could lose your disability insurance if you switch jobs. So if you have the disability insurance in place that has that future options, that supplemental policy that you bought to kind of cover down on some of those shortages would then become your primary insurance policy, disability policy. So it makes sense to have that in place. So Tim Church, I think we explored disability fairly in-depth. I’m glad we were able to go through the PolicyGenius quote process to kind of give an idea of what that looks like for you. So thank for coming on the podcast, and hopefully our listeners get something out of this and at least get the wheels turning in terms of what they need from, you know, their ability to protect their income.

Tim Church: Definitely. Thanks, Tim. I think it’s so important and just, like I said, like we’ve been talking about, that you worked so hard to get to where you are and also you’ve got to think about yourself and your family and who’s dependent on that income just like life insurance. So at the end of the day, it can really make you feel pretty good to have that protection in place.

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